- Bullish market share is unchanged at 48%, despite ECB and before NFP
- Pending orders are back in red in both 50 and 100-pip ranges
- Euro jumped the most in six years; correction seems likely amid NFP report and looming Fed meeting
- Technical indicators are united in predicting a correction during next week
- Economic events to watch in the next 24 hours: German Factory Orders (Oct); US Non-Farm Employment change (Nov), Average Hourly Earnings (Nov), Trade Balance (Oct) and Unemployment Rate (Nov)
The European Central Bank decided to embark on more stimulus measures to fight stubbornly low inflation. The central bank lowered the interest rate of the deposit facility by 10 basis points to –0.30%. In addition to that, the ECB extended its asset-purchase programme until the end of March 2017, or beyond, if necessity arises. However, the bank did not decide to boost the monthly purchases, disappointing markets who had anticipated for at least 15 billion euros a month boost to 75 billion euros in assets a month. The central bank hopes that additional measures would reinforce momentum of the Euro zone's economic recovery and strengthen its resilience against global economic headwinds. The ECB revised its growth outlook upwards, predicting the currency bloc's economy would expand at a 1.5% rate in 2015, compared with the 1.4% projection in September, while the central bank kept the 2017 growth forecast intact. With regards to consumer prices, the ECB continued to expect inflation to remain at 0.1% this year. In 2016, however, the ECB lowered its inflation predictions from 1.1% to 1.0%. The Euro gained versus the US Dollar, surging 2% to trade as high as $1.0864 after the announcements, having traded around 0.1% down versus the counterpart at $1.0604 prior to the decision.
Fed Chairwoman Janet Yellen reiterated that interest-rate hikes will be slow and gradual in the months ahead due to sluggish growth overseas as well as divergent monetary policies between the US and other nations. In her testimony for Congress' Joint Economic Committee, Yellen said that the Fed is ready to lift rates at the central bank's policy meeting this month as the domestic economy continues to strengthen. However, global setting is giving the Fed pause about acting aggressively beyond that. Yellen also added that the market is close to the Fed's goal of full employment and that drags on inflation will fade next year. Her comments came less than two weeks before the FOMC meets to decide on whether to raise interest rates for the first time in almost a decade. Fed officials hold their next policy meeting December 15-16. They are widely expected to raise short-term interest rates by a quarter-percentage point, from near zero, where they've been since December 2008.
Upcoming fundamentals: A jobs day in the US
This extremely busy week is going to end with labour market statistics from the world's biggest economy. Payrolls advanced by 201,000 in November, according to average estimate among economists surveyed. Any number will follow 271,000 jobs created in October when the indicator outpaced all market forecasts. Alongside, the jobless rate is projected to stay flat at 5.0%. Analysts suggest that any pace of job creation above 150,000 should affirm the Federal Reserve's view that interest rates should start rising this year.
EUR/USD rallies past 1.09 after ECB disappointment
EUR/USD's surge by more than 300 points was hardly predictable yesterday, even though the ECB unveiled more support for economy. Daily growth of the Euro was the sharpest since 2009, while trading volumes spiked to reach 5-month high. The pair is managing to hold gains until the moment of writing on Friday. Both monthly PP and R1 were immediately eroded, supporting additional gains in the near term. However, EUR/USD will inevitably meet 55, 100 and 200-day SMAs in the range of 1.0996/1.1061. According to weekly technical indicators, a correction can start very soon.Daily chart
The short term development for EUR/USD is rather uncertain, following a climb past 1.09 yesterday. A sell-off is likely due to returning confidence that the Fed is going to raise interest rates in two weeks from now and the ECB continues to ease the policy in any case. At the same time, EUR/USD has largely ignored many technical resistances on Thursday, meaning other supply levels are not protected from violation by any additionally rally.
Hourly chart
SWFX sentiment is flat despite post-ECB move
Contrary to the SWFX distribution between the bulls and bears, OANDA and SAXO Bank traders became much more bearish with respect to the Euro after the steep increase in this currency's value. OANDA clients are short on EUR/USD in 61.66% of all trades at the moment, while SAXO Bank market participants opened more short positions to push the bearish portion up to 68%.
Spreads (avg,pip) / Trading volume / Volatility
72% of Dukascopy Community members forecast the Euro to drop versus the US Dollar this week
No change in the Dukascopy Community members' sentiment has been observed, with less than 30% of votes being bullish. "The EUR/USD pair is in for a volatile week with several fundamental drivers. The ECB will be announcing their monetary policy plans and Draghi has been vocal about introducing further stimulus. The downside may be limited somewhat, as the market has been pricing this in for several weeks already," said Jignesh.
According to one more Community member, babanu, "the Euro looks very heavy. Taking into account this week's meeting, when the ECB President Mario Draghi will probably announce more stimulus to bring inflation to a more sustainable 2% level."